Euro zone inflation nears ECB target, joblessness at record

Euro zone inflation fell more than expected in January in a sign that companies were cutting prices to entice shoppers at a time when joblessness remained at a record level at the end of 2012.

The rate of consumer price inflation in the 17 countries using the euro fell to 2 percent in January compared to a year ago, the EU's statistics office Eurostat said on Friday.

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The reading, Eurostat's first estimate, was lower than the 2.2 percent level forecast by economists polled by Reuters, which was also December's level.

Unemployment remained at a euro-era high of 11.7 percent in December, Eurostat also said, slightly lower than the 11.9 percent level expected by economists, but still higher than the European Commission's year-end 11.3 percent prediction.

Inflation is now near the European Central Bank's target of close to, but below 2 percent, and along with record unemployment, gives the ECB bank room to cut interest rates again to stimulate the economy.

But an improvement in euro zone business morale for the third straight month in January and better factory output suggest the bloc has passed the worst of its recession, meaning further ECB stimulus in the form of lower borrowing costs may not be necessary.

The ECB's task is also complicated by a divide between wealthier, northern countries which are showing signs of emerging from the euro zone's three-year debt crisis and countries such as Spain and Italy, that are in deep recessions.

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"The story in the euro zone remains one of national divergence between the peripheries and the core," said Evelyn Herrmann, an economist at BNP Paribas in London, also pointing to a growing gap between the German and French economies.